Construction Tax a Poor Bet, Domb Argues

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At-Large City Councilman Alan Domb discussed his opposition to a new 1% tax on construction (the Construction Tax) in the City of Philadelphia designed to fund approximately $20 million annually to the Housing Trust Fund.

Domb is opposed to the tax because in his opinion, supported by research performed by the City’s Office of the Director of Finance, the administration of the tax and lost revenues related to it would cost the City more than the estimated proceeds from the tax.

Domb proffered instead an alternative way to raise these funds, through a reduction of the 10-year tax abatement currently applied to certain construction. Domb stated that his colleague Bobby Henon (6th Dist.) agrees with him.

The Construction Tax was approved by City Council just before its summer recess, by a narrow 9-to-8 vote. Mayor Jim Kenney voiced concern about the tax and has stated he may veto the bill.

Unless some Council members who voted against the Construction Tax change their minds, there may not the three additional votes to override a mayoral veto (a super-majority of 12 are needed to override).

Domb referred to the Construction Tax as a “tax on the abatement.” The City offers 10-year tax abatements through three ordinances: Rehab Construction for Residential Properties (Ordinance 961), Rehab & New Construction for Commercial & Industrial Properties (Ordinance 1130) and New Construction for Residential Properties (Ordinance 1456-A).

Domb mentioned a study commissioned by the Office of the Director of Finance and performed by Jones Lang LaSalle earlier this year. In response to pressure to eliminate the abatement, the study looked at 10 scenarios to reduce or eliminate the abatement. One of the scenarios saw the abatement cut to 75% in year 8, 50% in year (X??), 25% in year (Y??) and zero thereafter (as consistent with current abatement ordinances. The study concludes that the present value (PV) of this scenario is $60-70 million.

Domb pointed out that the PV of reducing the tax abatement in later years brings in more revenues than the Construction Tax, which is estimated by proponents at $20 million per annum.

This economic-impact study by the of the Construction Tax indicates that cumulative tax revenues for FY19-FY23 would be $40.3 million, significantly lower than its proponents’ estimate.

The study states, “The Administration of the tax relies on experience that L&I, Revenue and OPA do not have.” The creation of the bureaucracy to deal with the new tax, Domb argued, is expected over five years to cost, on a cumulative basis, $15.2 million.

Domb maintained that this, combined with lost revenue owing to reduction in construction and thus related taxes, would cost the City $31.9 million cumulatively over the next five years. Dumb said that the Construction Tax would also reduce real-estate development and would have a negative impact on City revenues to the tune of $56.4 million cumulative over five years.

Asked how he would respond to people who believe that permanent public housing is the responsibility of the U.S. Department of Housing & Urban Development, he responded that the Trust is designed in large part to give grants and loans to property owners who need to repair their otherwise potentially blighted property. Domb said it was better to repair these owner-occupied properties as it was cheaper than letting the property disintegrate further, impairing the quality of the home and the neighborhood.

The Trust gives money grants/loans typically in the range of $10,000-15,000. Domb noted that the last HUD-developed affordable-housing units in Strawberry Mansion cost $418,000 per unit.

“How can the government can ask its police and firefighters to pay taxes for subsidized house worth over $400,000 per unit when they live in homes accessed by OPA at less than half that?” Domb asserted. The average OPA assessment of homes in the city is $141,000.

Domb, a former real-estate developer (he left that business when coming on City Council as it was a conflict of interest), is concerned that our classic row homes, sometimes with stone and woodwork not seen today, are left to ruin. He said it is important to preserve our existing housing stock: “This is our heritage.”

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2 Responses to Construction Tax a Poor Bet, Domb Argues

  1. For the love of what you hold dear……

    Proofread your articles, Domb lost his appeal after his named [sic] turned to Dumb….. You’re a journalist that uses words as your milieu the least you could do is use them correctly.

    Not sure who this councilman is but he actually proposed a plan that didn’t call for more taxes on those already paying the bulk of them. This may be TOO fiscally sound an idea to ever have a chance in this city.

    Anyone know where our beloved powers that be are going to spend the first bit of that soda tax money? One hint…. it ain’t on those poor pre-k kids…..

    September 3, 2018 at 9:08 pm

  2. It is unclear what you are talking about with regards to Allan Domb’s name.

    Domb was elected to Philadelphia City Council at Large in 2015.

    Tony West
    September 13, 2018 at 10:07 am

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